The present invention relates a device for providing markdown prices.
In retail businesses, prices of various products must be set. Such prices may be set with the goal of maximizing margin or demand or for a variety of other objectives. Margin is the difference between total revenue and costs. Total sales revenue is a function of demand and price, where demand is a function of price. Demand may also depend on the day of the week, the time of the year, the price of related products, location of a store, the location of the products within the store, advertising and other promotional activity both current and historical, and various other factors. In addition, demand is also heavily influenced by the seasonal patterns and holidays. As a result, the function for forecasting demand may be very complex. Costs may be fixed or variable and may be dependent on sales volume, which in turn depends on demand. As a result, the function for forecasting margin may be very complex. For a chain of stores with tens of thousands of different products, identifying the relevant factors for each product and store, then determining a function representing that demand are difficult. The enormous amount of data that must be processed for such determinations is too cumbersome even when done by computer. Further, the methodologies used to forecast demand and the factors that contribute to it require the utilization of non-obvious, highly sophisticated statistical processes.
Such processes are described in U.S. Pat. No. 7,062,447, entitled IMPUTED VARIABLE GENERATOR, filed Dec. 20, 2000 and issued Jun. 13, 2006 by Valentine et al., and U.S. patent application Ser. No. 09/741,958, entitled PRICE OPTIMIZATION SYSTEM, filed Dec. 20, 2000 by Venkatraman et al., which both are incorporated by reference for all purposes.
A markdown is a schedule of known price reductions taken over a relatively short time interval with the express purpose of managing a product out the assortment gracefully and cost-effectively. Markdowns occur for various reasons including planned assortment transitions or resets, product obsolescence and discontinuance brought on by changes in technology, taste, law and a myriad of other factors that affect consumer demand. Category resets and assortment changes are by far the major drivers of markdown pricing.
Markdown pricing is an important consideration for retailers who sell seasonal, fashion, or other short-life-cycle products. “Clearance markdown dollars” which equal the revenue that would be generated at regular price minus the actual dollars obtained from marked-down items, often amount to several million dollars per year for major retail chains. While markdown discounts boost sales, they erode profits. Taking into account generally thin margins for the majority of retailers, the implementation of optimal markdown policies (that is, the timing and magnitude of markdowns) becomes crucial.
In addition, markdown pricing is a more highly focused specific goal-driven activity than base price and promotion. It also tends to be more tactical in nature, liquidating inventory over a specific time period. The objective of pricing during the clearance period is different from base pricing or promotions. Although the business task of pricing is the same, the approach, importance and decision criteria for pricing during the clearance period is different.